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Soak up tax breaks at winter conventions

by on
in Small Business Tax,Small Business Tax Deduction Strategies

Wouldn't you like to get away to a tropical paradise this winter? If you sign up for a convention relating to your industry or profession, you can have Uncle Sam pick up part of the tab. As long as business is the trip's primary purpose, you can write off all your convention expenses. It's like a tax discount on the trip.

However, be aware that the rules are tougher for conventions held outside the "North American area," which include the United States, Canada, Mexico, U.S. possessions (including Puerto Rico and Virgin Islands) and many Caribbean countries.

Depending on its location, you might even bypass one convention in favor of another. It could mean the difference between a four-figure tax deduction and no deduction at all.

Inside "North America."
First, let's look at the rules for business conventions held inside the North American area. Assuming that business is the trip's primary motive, you can deduct air fare, lodging and convention fees. Also, you can deduct 50 percent of the cost of your meals and any qualified entertainment.

Example: Suppose you attend a seminar in San Juan and, after a morning round-table discussion, you meet with an associate to work out a business venture. Then, you treat the associate to an evening sea cruise followed by dinner and drinks at the hotel's swankiest restaurant. You can write off 50 percent of the cost of the entertainment as a business expense.

Note that unreimbursed business travel and entertainment expenses paid by an employee are subject to another tax-law limit. These expenses are lumped in with your other miscellaneous expenses. You can deduct the annual total only after it exceeds 2 percent of your adjusted gross income. So, it's usually preferable to have your employer foot the bill.

Outside "North America." If you attend a convention outside the North American area, you face an extra requirement: You must show that it's reasonable for the convention to be held outside the North American area. If you don't pass this "reasonableness" test, your deduction is zero.

How do you establish what is reasonable? You can cite these three factors:

1. The purpose of the convention and the activities taking place at the convention.

2. The purpose and activities of the sponsoring organization of the con-vention.

3. A list of active members' residences of the sponsoring organization and other prior and prospective convention sites.
No matter where the convention is held, you must meet strict recordkeeping rules to back up your deduction. Keep notes on all the sessions you attend, plus brochures and other documents detailing business-related activities.

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